Early Termination Fees
Have you ever received a merchant processing agreement with so much fine print that reading through it would have taken hours? In addition to the lengthy contract, you find yourself wondering what the legal terminology all means. Ultimately, you gave in and just signed on the line. We’ve all been there, some of us paid a smaller price than others especially when it comes to an early termination fee.
If you are a new business or a well-established business, iQ Merchant believes that no matter where you are at in your journey, you should have access to the most transparent industry information and pricing.
In today’s article, we will discuss what an early termination fee is, why you may have one, and how to avoid incurring an early termination fee, which can range anywhere from $100 to $500+. This number can vary depending on how many locations the business has and what your merchant processing agreement states.
Early termination fees (ETF), also known as cancellation fees, are contractual clauses that will trigger a charge to post to your account if you decide to close your account before your merchant processing agreement expiration date. That is, if you have this clause in your agreement and have the option to cancel early. There are agreements that mandate payment for services you already cancelled until the agreement expires. Early termination fees are just another way for credit card processing companies to recoup a portion of the earnings they would have earned from the account have you not terminated services early.
Types of Early Termination Fees
The two most common early cancelation fees are flat rate and sliding rate. Flat rates mean exactly just that, one flat rate that is charged to you that can be as much as $500! The other rate is a more of a fluctuating rate depending on your processor, and what they deem as “provisional damages”. Provisional damages usually cover merchant account activation and equipment installation, remaining months left of the contract, and whether your leased equipment. Equipment leases may come with an ETF of their own. If you signed a merchant processing agreement for 3 years of processing and a year later decided to cancel your account, you could end up paying for the remaining 2 years of your contract. Processors will look at the monthly fees they were making off your account, multiply that by the remaining months of your contract and mandate payment for the remainder of the contract.
In some cases, a large processor may have you personally guarantee the contract, which means that upon early termination, if the business does not pay for the ETF, they can personally sue whoever personally guaranteed the merchant agreement. Reading the fine print and even having an attorney look at the merchant processing agreement doesn’t sound as much of a hassle now, does it? Watch out for personal guarantees and read your contracts carefully.
the “No” list
Some things we just don't do.
No markups over interchange
No contracts
No cancellation fees
No batch fees
No statement fees
- No markups over interchange
- No contracts
- No cancellation fees
- No markups over interchange
- No contracts
- No cancellation fees
- No batch fees
- No statement fees
- No hidden fees
- No BS
- No batch fees
- No statement fees
- No hidden fees
- No BS
Is There a Way to Avoid Early Termination Fees?
The best way to avoid an early termination fee is to carefully read the merchant processing agreement or have an attorney review it. If there is an early termination fee, search for processing companies that do not have ETFs in their merchant agreement. Fortunately, times have changed and not all processing companies impose hefty ETFs.
The best way to avoid cancelation fees is to know your merchant agreement end date and give the processor cancellation notice 90 days in advance. If you miss your contract end date, it may automatically renew. Find out how the processor prefers to receive cancellation notices. After providing either written or oral notice, follow it up with a phone call to make sure it was received and recorded.
After you have canceled your account with the processor, periodically check your bank statement to ensure there are no additional charges from the processor deducted from your account.
How You Can Avoid Early Termination Fees
Whether you are just starting your business or looking to switch processing companies, there are processing companies that do not charge early termination fees. iQ Merchant partners with small and medium size businesses to provide the best credit card processing experience, without early termination fees.
Here at iQ Merchant, we prefer to watch your business dream blossom and have the pleasure of helping you achieve that dream along the way.
